3.BondValuation.F09

3.BondValuation.F09 - Lecture 2: Asset Valuation:Bonds Bond...

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1 Lecture 2: Asset Valuation:Bonds Bond Valuation The value of any asset is the present value of all the future income that the owner of the asset will receive. Price/Intrinsic Value= t = 1 " # Income in Period t 1 + appropriate discount rate in period t $ % ( ) ) t Bond : a fixed obligation debt security issued by governments, governmental agencies, municipalities and corporations. The bond indenture specifies the terms of agreement between bond issuer and bond-holder. A bond is an IOU.
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2 Bond Valuation 4.25% bearer bond of 1981. The bond's term was fifty years, and coupons were semiannual. This specimen has 22 coupons stil attached. Bond Jargon Par/Face Value – payment to bondholder upon maturity Coupon payment - semiannual payment of interest to bondholder Zero-coupon bond – no coupon payment debt instrument Term to Maturity – specifies date when the bond matures Bond Indenture – contract between issuer and bondholder that spells out the issuer ! s legal requirements Example of a coupon bond :
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This note was uploaded on 01/20/2010 for the course ECON econ134 taught by Professor M. during the Fall '09 term at UCSB.

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3.BondValuation.F09 - Lecture 2: Asset Valuation:Bonds Bond...

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